Financial Review

Thursday Jobs Report

Sinclair Noe — July 2, 2015

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DOW – 27 = 17,730
SPX – 0.64 = 2076
NAS – 3 = 5009
10 YR YLD – .02 = 2.39%
OIL – .03 = 56.93
GOLD – 2.60 = 1166.70
SILV + .13 = 15.78

Normally, we get the jobs report on the first Friday of the month, but the stock and bond markets will be closed tomorrow for the 4^th of  July holiday; so, it’s a Jobs Report Thursday.

The US economy created 223,000 new jobs in June. The unemployment rate dropped from 5.5% to 5.3%; that’s the lowest level in 7 years. Employment gains for May and April were revised lower by a combined 60,000.  Most estimates were calling for 225,000 new jobs last month, so today’s report was right in line. Total employment is now 3.5 million above the previous peak.  Total employment is up 12.2 million from the employment recession low. The economy has produced at least 200,000 jobs in 13 of the last 15 months.  The economy added 2.9 million jobs in the past 12 months.

The participation rate – the percentage of workers in a job or actively seeking a job – dropped three ticks to 62.6%, as 432,000 people dropped out of the labor pool. And this explains why the unemployment rate dropped to 5.3%, because fewer people were looking for work.  Part of the reason may be demographics, as the Boomer generation moves into retirement; so, to get a better indication we can look at the 25-54 age group, which is considered prime years for working – too old for school and too young for retirement; among this age group, the participation rate dropped to 80.8% in June from 81%. This is not a good sign.

The decline in the participation rate is even more disconcerting because June tends to be a month when people move into the labor force; teenagers get summer jobs, recent college grads throw the CVs out on the internet, teachers take work between semesters. In the last decade, an average 1.35 million workers have entered the labor force every June on a not seasonally adjusted basis. This year, the gain was 564,000. That translates into a decline for the seasonally adjusted data, since the monthly increase was much less than it usually is. One theory is that the cold winter weather resulted in snow days, and many students and teachers were still in the classrooms in June. If that is the case, we might see a pop in the July numbers. Or it might be a data glitch, which will be corrected in revisions. Or not. It might just be an indication that there is still way too much slack in the labor force. Unless this trend changes, the shrinkage in the labor force implies that the United States’ economic potential is lower than it would be if there were millions of people ready to jump back into the work force if there were jobs on offer. (And no, I do not know how they count recently announced presidential candidates. Clearly that is a number that could skew results.)

So anyway, the labor force participation rate is at 62.6%, and that is the lowest level since October 1977. It is interesting to look at the changes between the 1977 labor market and today. The biggest difference is in the number of women employed, from 36 million in October 1977 to 54 million now. Male employment has also climbed, but not as much. So as the female labor-force participation rate has climbed, the male rate has dropped, from 80% to 72%. And whereas the male unemployment rate was much lower in 1977, now there’s gender parity. What hasn’t changed is the racial imbalance. The black unemployment rate is about double the white unemployment rate, then and now. The other big change is that in 1977 there were more people working in manufacturing, more than 19 million compared to a little more than 12 million today. Construction is up, a bit; transportation and public utilities have grown the most by percentage. But the big difference is in the service sector, which has exploded from around 15.5 million in October 1977 to almost 62.5 million today.

And that isn’t the only way the labor market has changed in the past 38 years; work has become untethered from the office thanks to the technological revolution; that has led to an explosion in freelance or a more flexible workforce.  Imprecise terms like “temp,” “contingent,” and even “freelance” fail to reveal the shift taking place; there is a new category of “on demand” workers. The rise of the on-demand workforce encompasses far more than Lyft, its rival Uber, or similar start-ups like Airbnb, for overnight stays, that allow for new “sharing” sources of income. And it’s hardly a millennial phenomenon, although younger workers do have the highest rates of “freelance” work, and generally hope to keep it that way. It’s possible that “work” is also coming in multiple forms, from multiple sources.

Of self-described freelance workers, 27% have a traditional job and “moonlight,” and another 18% do a mix of full-time and freelance work, whether by choice or necessity. The classification of people as either employees or independent contractors for legal purposes is also not keeping up with reality. And here’s a shocker, the governmental agencies assigned with tracking this workforce, haven’t kept up. The Labor Department’s “Contingent Work Supplement” was designed to track some of the indicators, but they ran out of money in 2005. So, the reality is we just don’t know.

The number of people working part-time for economic reasons decreased from 6.6 million in May to 6.5 million in June. An alternate measure of unemployment known as U-6, which includes underutilized workers, dropped to 10.5%, the lowest level since July 2008.

Most industries added jobs in June, with the notable exception again of energy producers; the mining and logging sector, which includes jobs in the oil fields, lost 3,000 jobs last month; the unemployment rate in the mining and gas industry now hovers around 8.9% – a sharp increase from 2.5% one year ago. White-collar workers in fields like finance, insurance, software and marketing have been in high demand lately, a turnaround from the early days of the recovery when many new jobs tended to be in low-wage sectors like retailing and restaurants. Professional and business services added 64,000 jobs last month; since last summer, for example, the financial sector has added more than 100,000 new positions; the banking and finance industry now boasts the lowest unemployment rate, 2.5%, of any industry tracked by the Bureau of Labor Statistics.

Taking a look at other industries: education and health services added 50,000 jobs, retail added 33,000, leisure and hospitality gained 22,000, financial activities 20,000, transportation gained 17,000, information added 7,000, and manufacturing added 4,000. Utilities lost a few hundred jobs and mining down 3,000. Government jobs both at the federal level and the state and local level were flat.

Retailers hired 33,000 people in June after taking on 26,000 new workers in May. Over the past year the industry has filled some 300,000 positions to boost overall employment to a record 15.7 million. Retailers are hiring like they expect sales to pick up, even though we haven’t seen an indication that sales are actually picking up. And that goes in line with another economic report this morning showing orders for goods produced in U.S. factories fell 1% in May. Orders for durable goods, products meant to last at least three years, fell 2.2%, compared with a prior estimate of a 1.8% drop. Meanwhile, orders for nondurable goods increased 0.2%. Last week the Commerce Department reported consumer purchases rose 0.9 percent in May, the biggest gain since August 2009

Average hourly earnings for all employees on private nonfarm payrolls were unchanged at $24.95. Weekly hours were unchanged for the fourth month in a row, at 34.5. Over the year, average hourly earnings have risen by 2.0 percent. Any increase is good, but the pace is discouraging because it’s still far below the 3% to 4% wage gains that were common in the mid- to late-1990s.Every month for the past 3 years the economy has added at least 100,000 new jobs, but wage growth shows no pulse, no signs of life. This would suggest that the unemployment rate could go much lower before we need to worry about wage push inflation.

So, the economy added 223,000 jobs but there was weakness in the participation rate, and wages, and the prior 2 months were revised lower. And that means nothing in today’s jobs report is expected to dramatically change the Federal Reserve’s outlook for the economy or a possible rate hike in September. Still, traders who use fed funds futures contracts cut their expectations of a September move down to 17% and even lowered their expectations of a move by December a bit. The Fed has four policy meetings left this year: July, September, October and December. If you think the Fed will hike rates in September, today’s report probably did not change your outlook. If you think the Fed will wait till December or maybe next year, again, no need to rewrite your thesis.

The Fed seems to think full employment is when the unemployment rate hits about 5% to 5.2%; that’s the most jobs we can have while keeping the inflation genie in the bottle. But when you look at the shrinking participation rate, and weak wages, and underutilized workers, and temps, and part-timers – maybe 4% unemployment rate is closer to full employment. Nobody knows how low unemployment can go before inflation picks up. Everybody, including the Fed, is just guessing. The only thing we do know is that we’re not there now. And that’s why there’s a strong case for the Fed to wait.

Today’s report: 223,000 new jobs in June. The unemployment rate 5.3%. Flat wages, declining participation. Decent, not great.

FINANCIAL REVIEW

September Jobs Report

Sinclair Noe — October 3, 2014

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Financial Review

Podcast: Play in new window | Download (Duration: 13:15 — 6.1MB)

DOW + 208 = 17,009
SPX + 21 = 1967
NAS + 45 = 4475
10 YR YLD + .01 = 2.44%
OIL – 1.31 = 89.70
GOLD – 23.60 = 1191.70
SILV – .24 = 16.96

There is an old saying in the markets, “Sell Rosh Hashana, Buy Yom Kippur”, and when Yom Kippur falls on the first Friday of the month and coincides with a strong monthly jobs report, there is wisdom in the adage.

Each month we focus on the jobs report and try to tell you everything you need to know; let’s go. The economy added 248,000 net new jobs in September. The unemployment rate dropped from 6.1% to 5.9%, falling below the 6% level for the first time since July 2008. Most estimates had called for job gains in the range of 210,000 to 220,000.

In August the jobs report was far less than expected, coming in at just 142,000 jobs, however, today the August report was revised up to 180,000. And the July number was revised higher from 212,000 to 243,000. So, the two month revisions added a combined 69,000 more jobs than previously reported. The gain in payrolls over the last six months was the strongest for any six-month period since before the 2007-09 recession.

Employment is now up 2.63 million year-over-year. The economy has added 2,040,00 jobs year to date. At the current pace, the economy will add about 2.7 million jobs this year. It looks like 2014 is on track for the best total nonfarm and private sector employment growth since 1999. Total employment is now 1.07 million above the pre-recession peak. Private payroll employment increased 236,000 from August to September, and private employment is now 1,547,000 above the previous peak. Private employment is up 10.34 million from the low.

The Labor Force Participation rate dropped in September to 62.7% from 62.8%, not a big move, but enough to give a boost to the headline unemployment rate of 5.9%. Unemployment declined by 329,000 to 9.3 million and more than 200,000 people got jobs. There are two reasons why the unemployment rate can drop: more people getting jobs or fewer people in the labor pool; today’s report was a combination.

The number of people participating in the labor market is now at a 36 year low; you have to go back to 1978. Part of the reason people leave the work force is because of demographics; the population is aging and people are retiring, sometimes because they want to and sometimes because they just can’t find work. A Federal Reserve paper puts half of the decline to the aging of the baby-boom generation. While there are more older workers than ever, due to increased longevity, better health, and the need to work due to destroyed wealth from the Great Recession, this cohort is still retiring in great numbers.

That same Federal Reserve paper put as much as 1 percentage point of the decline from its 2000 peak of 67.3% due to cyclical factors; that is, people who previously wanted to work and now are discouraged.

The number of persons working part time for economic reasons decreased in September to 7.1 million from 7.2 million in August. These are people working part-time but they would like full-time work, or their hours have been cut back, or they just can’t find full-time positions. These workers are included in the alternate measure of labor underutilization, U-6 that decreased to 11.8% in September from 12.0% in August. This is the lowest level for U-6 since October 2008.

And there are still about 2.9 million people who have been unemployed for more than 6 months and are still looking for a job. This number has been trending lower but is still very high. Many people who have been unemployed for more than 26 weeks lose benefits and just fall off the charts. One in five workers was laid off in the past five years and about 22% of those who lost their jobs still haven’t found another one. Those who did find work had a difficult time with their job search and the effects of unemployment. Nearly 40% said it took more than seven months to find employment and about one in five of laid-off workers said all they could find was a temporary position. And 46% of the estimated 30 million layoff victims who found new jobs said they paid less than their old ones. While job growth has been consistent, it has been insufficient to produce enough full-time jobs for everyone. This has also impacted wages.

Average hourly earnings for all employees on private nonfarm payrolls, at $24.53, down 1 penny in September, but weekly earnings rose by more than $2 because they put in longer hours. The average workweek in manufacturing rose to 42.1 hours in September, near its highest level in more than 60 years. The average workweek across all sectors rose to a post-recession high. Eventually, employers will hire new workers rather than pay overtime, but we’re not there yet. Over the year, average hourly earnings have risen by 2.0%. In September, average hourly earnings of private-sector production and nonsupervisory employees were unchanged at $20.67. For the 80% of workers who aren’t supervisors, however, average weekly pay fell about $2. So, the lower unemployment rate has not yet translated into wage pressure.

Part-time workers have been part of the reason for slow-growing wages. The high number of part-time workers, especially given the broad number that would prefer full-time work, represents a significant underutilization of labor resources which is dampening wage growth. As the job market continues to improve, there is an opportunity for more of these part-time employees to move into full-time work. Eventually these employers are going to have to resolve their resource needs by hiring a qualified worker in the position.

Employment increased in every broad business sector, from manufacturing to hospitality. Services added 207,000 jobs, while manufacturing added just 4,000. The strongest gains were in professional and business, with gains of 81,000, however one quarter of those positions were filled by temp jobs; retail added 35,000 jobs after 5,000 were lost in August. Leisure and hospitality added 33,000; these are sectors that emphasize hourly employees with low benefits; these are also areas that have been leading job gains in the recovery, which might explain stagnant wages. Education and health services added 32,000; construction gained 16,000; finance added 12,000. Government added a net of 12,000 jobs; state and local governments added 14,000 jobs; federal lost 2,000. That’s a major turnaround from the draconian cuts we saw early in the cycle, which was a major drag. State and local government employment is now up 143,000 from the bottom, but still 601,000 below the peak. State and local governments lost jobs for 4 straight years. Federal government layoffs are down 25,000 for the year but it looks like the rate of decline is slowing slightly with just 2,000 federal government job layoffs in September.

Consider these facts from the National Employment Law Project:
Lower-wage industries constituted 22 percent of recession losses, but 44 percent of recovery growth. Mid-wage industries constituted 37 percent of recession losses, but only 26 percent of recovery growth. Higher-wage industries constituted 41 percent of recession losses, and 30 percent of recovery growth. Today, there are nearly two million fewer jobs in mid- and higher-wage industries than there were before the recession took hold, while there are 1.85 million more jobs in lower-wage industries. Service-providing industries such as food services and drinking places, administrative and support services, and retail trade have led private sector job growth during the recovery. These industries, which pay relatively low wages, accounted for 39 percent of the private sector employment increase over the past four years.

The September jobs picture was affected by a handful of onetime events, like the return to work of about 20,000 New England grocery store employees who walked out in July, and the loss of jobs at shuttered Atlantic City casinos.

Fed officials are going to have a hard time judging the health of the labor market. The unemployment rate is falling toward the range that Fed officials regard as normal more quickly than they had expected. Most Fed officials predicted in September that the rate would be no lower than 5.9 percent at the end of the year, but the latest data also shows that hourly wages rose just 2 percent over the last 12 months, suggesting that it was still unusually easy for companies to hire workers. In other words there is still considerable slack in the labor market.

The thinking is that the Fed is aiming for 5.5% unemployment, maybe a bit lower, as the target where a tighter labor market leads to faster wage growth and subsequent cost pressures feed through to higher inflation. This is the key reason the Federal Reserve has historically been nervous about keeping its foot pressed on the accelerator when unemployment got this low. But in reality, we don’t know when the wage pressure will kick in based upon the unemployment rate. After all, at the end of the Clinton administration, unemployment was below 4 percent, while inflation remained low and stable. Perhaps we should be looking at a combination of the unemployment rate and the increase in wages above and beyond the inflation rate before we start worrying about wage pressure.

Add in other variables, such as the participation rate, and the fed may need to rethink their target for unemployment, maybe below 5%. In September, 232,000 more people reported being employed and 329,000 fewer people reported being unemployed. The improving job market does not seem to be pulling people who left the labor force over the last few years back into it. In fact the size of the labor force actually ticked down by 97,000 in September. What we really should be looking at is an economy where everyone who wants a job has a good opportunity to get a job.

Fed chairwoman Janet Yellen said last month that she still saw clear problems in the labor market, and that the Fed’s stimulus campaign was still helping to ease those problems. As long as inflation remains sluggish, officials see relatively little risk; they would rather err on the side of pushing a little too hard to create jobs than retreat prematurely.

The economy has added jobs for 55 consecutive months. The September report of 248,000 jobs and 5.9% unemployment was better than expected. It was a very good report. We still have a long way to go, but we are headed in the right direction.

http://www.bls.gov/news.release/empsit.nr0.htm

http://data.bls.gov/timeseries/LNS14000000

http://www.nelp.org/page/content/lowwagerecovery2014/

Friday, August 01, 2014 - Jobs, Mainly

Financial Review with Sinclair Noe

DOW – 69 = 16,493
SPX – 5 = 1925
NAS – 17 = 4352
10 YR YLD - .05 = 2.50%
OIL - .32 = 97.88
GOLD + 13.70 = 1295.20
SILV - .09 = 20.40

The first Friday of each month brings us what I consider one of the most important economic reports we can cover, the jobs report; and so we provide comprehensive (wonkish) coverage.

The economy added 209,000 net new jobs in July. The unemployment rate moved up to 6.2% from 6.1%. Even though the economy added jobs, more people joined the labor force, and that is why the unemployment rate moved higher. The 209,000 new jobs was below estimates of about 230,000. The report from June was revised from 288,000 to 298,000; the May report was revised from 224,000 to 229,000 for a net 15,000 in upward revisions.

Employment is up 2.57 million year over year. We have regained the jobs lost in the downturn, and total employment is 639,000 above the pre-recession peak. Total employment is up 9.35 million from the lows of the recession, and private employment is up almost 9.9 million from the lows; the difference reflects the job losses in government related jobs.

So far this year an average of 229,000 new jobs a month have been created. That’s a significantly higher pace than in 2010 when a mere 88,000 jobs a month on average were added. Since the start of the year the economy has added 1.6 million jobs.  At the current pace, the economy could add 2.75 million jobs this year, which would be the best year for total and private job growth since 1999.

This was the sixth month in a row with more than 200,000 jobs added, and that hasn’t happened since 1997. It was probably a bigger achievement 17 years ago, because the economy and the labor force was smaller back then, but the employment recovery has been chugging along through a first quarter that was frozen by the polar vortex and rebound in the second quarter. And the private sector has been adding jobs consistently since the first quarter of 2010.

The unemployment rate was up to 6.2%. The jobless rate can rise for both good reasons (more people looking for work) and bad reasons (fewer people having a job). This month, more people were looking for work. The Labor Force Participation Rate increased to 62.9% in July; this is a measure of how many people who are of working age are actually in the labor force and working or looking for work. The idea that the pool of labor is increasing is a positive; the idea is that some people who have been unemployed for a long time are now finding jobs. The trend in employment growth remains more than strong enough for the unemployment rate to keep trending down, even though the rate rose a tenth this month

Part of the decline in the participation rate was due to demographics; many older workers retired, whether they wanted to or not, while many younger workers stayed in school or returned to school. So, it’s helpful to look at people aged 25-54, in their prime working age; among this group, the participation rate declined slightly; this confirms that younger and older workers were jumping back into the labor pool.  Still, the employment to population rate, which measures the country’s population that reported having a job in July was unchanged at 59%, a number that was up only barely from its 58.7% level of a year ago.

There are still more than 3.1 million workers who have been unemployed more than half a year. And there are just over 7.5 million people working part-time for economic reasons. These workers are included in an alternate measure of unemployment known as the U-6, which includes unemployed and underutilized workers; U-6 increased from 12.1% to 12.2%.

Many people think the U-6 is a more accurate measure of the jobs market, but let’s dig a little deeper. There are 9.6 million people unemployed and actively looking for a job. There are more than 2 million people who have stopped looking for a job within the past year. When you start adding all the unemployed workers who want a job, plus involuntary part-time, plus discouraged workers, you come up with about 23 million people that could possibly move into the labor pool. There is still massive slack in the labor market, and it will take a long time to take up the slack. For now, it is a slow, steady slog.

Where is the job growth coming from? Professional and business services added 47,000 jobs. Retail employment gained 27,000 jobs. Manufacturing added 28,000 jobs last month but the sector has recovered only 30% of the jobs lost during the recession. Construction added 22,000 jobs. Leisure and hospitality gained 21,000. Education and health services added 17,000. Government added 11,000. State and local government employment is now up 151,000 from the bottom, but still nearly 600,000 below the peak. Federal government jobs have dropped by 22,000 since the start of the year. The loss of government jobs is one of the major factors in the slow jobs recovery. In previous downturns, government did not have layoffs, and sometimes increased hiring. In this downturn government jobs were cut in a wave of austerity measures.

Even though the economy has been adding jobs, it has not been enough to push a recovery in wages. In July, average hourly wages rose a penny to $24.45, a disappointing result after strong gains in June and May. In 23 of the past 24 months, the yearly increase in hourly pay has ranged from 1.9% to 2.2%, or about one-third less than usual during an economic recovery. The 12-month increase in wages as of July was just 2%; and inflation wiped out about three-fourths of that gain. There’s been no change since the start of 2014. While it might seem counterintuitive that wages are flat while jobs are being added, the likely reason is that there are a lot of poor paying jobs plus a few very good paying jobs. The average length of the workweek for private sector workers was unchanged at 34.5 hours.

Stronger than expected US growth figures on Wednesday showed second quarter GDP up 4% on an annualized basis, along with hawkish comments from US Federal Reserve board member Charles Plosser, it prompted fears that the central bank may increase the cost of borrowing sooner than expected. Today’s non-farm payroll numbers were just weak enough to ease concerns about possible tightening from the Fed, yet not so awful as to indicate a downturn. It still points to a job market and an economy that is improving, but there is no real wage pressure and nothing to indicate inflation is a concern.

We had a couple more economic reports today. The Institute for Supply Management said its index of national factory activity rose to 57.1 in July, the highest since April 2011, from 55.3 in June. A reading above 50 indicates expansion in the manufacturing sector.

The Thomson Reuters/University of Michigan's final July reading on the overall index on consumer sentiment came in at 81.8, down from the final June reading of 82.5. The surveyors report that consumers’ attention has been dominated by jobs and income growth.

For the week, the S&P 500 fell 2.7%, its biggest weekly percentage loss since the week ending June 1, 2012, while the Nasdaq fell 2.2%. The Dow ended down 2.8% for the week. The Dow's losses dragged it further into negative territory for the year. For the year-to-date, it is down 0.5%.

Markets have suffered a turbulent few days, hit by a combination of interest rate concerns and growing geopolitical worries. The violence in Gaza also added to the sense of events escalating out of control; a proposed 72 hour cease fire didn’t last one day. An Israeli soldier was captured, and it looks like violence will escalate over the weekend. The week saw Argentina defaulting for the second time in 12 years, while continuing tensions with Russia over the Ukraine led to the imposition of further sanctions which could hit businesses and put the brakes on global growth.

It was a big week for US economic activity, with jobs and GDP statistics and a Fed meeting, but it was European equity markets that took a real tumble. Portugal was a big loser, as Banco Espírito Santo reported the largest-ever loss for a Portuguese company, sending its shares spiraling and prompting probes into possible accounting fraud at the bank.

Portugal’s major stock index dropped 10% for the week. German stocks were hit following stepped up sanctions against Russia, a major supplier of natural gas to Germany; the DAX index slipped 4.5%. Greece, Austria, Spain, UK, and France all saw declines of 3% or more. The major Russian index dropped about 1%.

Europe posted its own jobs report. Eurozone unemployment dropped to 11.5%, which is absolutely horrible, but getting better. Meanwhile, the region continues to flirt with the prospect of deflation, with euro zone wide prices rising a scant 0.4% in July from the prior year. So, there is still plenty the ECB can do to stimulate the economy over there.

Meanwhile, Congress is calling a 5 week recess, an extended summer vacation, which even Europeans think is excessive. They managed to get a few things done before running away. They passed a $16 billion VA bill to help deal with extensive treatment delays and a recent record-keeping scandal. They cobbled together a patch for highway funding, just a temporary patch. This Congress has only managed to pass 142 bills into law, which puts the legislative branch on pace for its least productive session in modern history. And now they’re heading out for a 5 week vacation. Maybe we’ll get lucky and they won’t come back.

Thursday, July 03, 2014 - Jobs Report Thursday

Financial Review with Sinclair Noe

DOW + 92 = 17,068
SPX + 10 = 1985
NAS + 28 = 4485
10 YR YLD + .02 = 2.65%
OIL - .42 = 104.06
GOLD – 7.60 = 1320.60
SILV - .02 = 21.23

 

Record high closes for the Dow and the S&P 500.

The first Friday of each month is typically a big day for economic data because the Labor Department releases the nonfarm employment report. I have always considered this to be one of the most important economic reports because jobs make everything happen; it’s the stuff of work and production and a driver of capital, and sweat and blood. So, we spend extra time to really dig into the jobs report, which was released today because tomorrow is a holiday.

This was a very good jobs report. The economy added 288,000 net new jobs in June and the unemployment rate dropped from 6.3% to 6.1%; that’s the lowest unemployment rate since September 2008. The report topped estimates of 215,000 jobs. The jobs reports for April and May were revised higher; April was revised from 282,000 to 304,000 net new jobs; May was revised from 217,000 to 224,000 new jobs; meaning there were 29,000 more jobs than previously reported.

June marked the best five-month stretch of job creation since early 2006; for the past five months the economy has added at least 200,000 jobs per month. The three-month average rate of hiring in the second quarter now stands at 272,000, compared with 190,000 a month in the first quarter.

The economy has added private sector jobs for 52 straight months. During this span, 9.7 million private sector jobs have been created. Over the past 12 months, the economy has added 2.495 million jobs; and year-to-date the economy has added 1.385 million job; and 2014 is on track to be the best year for job growth since 1999.

Total employment is now 415,000 above the pre-recession peak; and private employment is now 895,000 above the previous peak; the difference between private and total is the loss of government jobs, which has been like an anchor dragging down total employment. State and local governments added 24,000 jobs last month; state and local government employment is up 138,000 from the bottom but still more than 600,000 below the peak. The federal government added 2,000 jobs in June but federal employment is still down 23,000 for the year.

Breaking down the government jobs a bit further, the improvement likely reflects a stabilizing financial outlook for municipalities. When home prices crashed, it cut into the tax base of cities and counties, and the response was to lay off workers. A return to government hiring, even a modest increase could have long term benefits from investment in education and infrastructure.

More than 7.5 million people are employed part-time for economic reasons; this number is up 275,000 in June, although the trend has been and remains down for the year. People who are working part-time because their hours have been cut back or they can’t find full-time employment are included in an alternate measure known as labor underutilization or U-6. The U-6 rate decreased to 12.1% in June from 12.2% in May; and this is the lowest U-6 reading since October 2008.

Full-time employment suffered its third-largest single month-over-month decline since the recession ended; 523,000 full-time jobs were lost while a stunning 799,000 new part-time jobs were added in June. Part-time workers again account for more than 18% of the total workforce, a level that has remained relatively stable since the recession, despite efforts to deny the truth that this is a "part-time" recovery. Part-time jobs had been in rapid decline over the past year, but June's spike cancels out that shift. There are now almost exactly as many part-time workers (28 million) as there were a year ago.

The Labor Force Participation Rate was unchanged in June at 62.8%. This is the percentage of the working age population in the labor force.  We would like to see the participation rate increase, meaning more people are looking for jobs, but a large portion of the recent decline in the participation rate is due to demographics; people are retiring and won’t be re-entering the labor force. The Employment-Population ratio increased in June to 59.0%.

The unemployment rate is calculated by dividing the number of people who are unemployed by the total number of people working or looking for work. The best way for the rate to fall is for the number of unemployed to drop because more people found a job, but it can also decline when people give up looking for work altogether. Still, the jobless rate dropped to 6.1% and that’s because more people found work, not because more people were dropping out of the labor pool; so the jobless rate fell for the right reasons.

As the labor market recovers, it creates a challenge of more people re-entering the labor pool. If more people re-enter the labor pool, the unemployment rate could go up, even as the economy adds jobs. But that hasn’t happened; rather, the number of unemployed who were re-entering the labor pool actually fell in June.

The number of long term unemployed workers has dropped by 1.2 million over the past year but there are still just over 3 million workers who have been unemployed for more than 26 weeks and they are still trying to find work; this is down from over 3.3 million people in May. There are many long term unemployed who may never get jobs again, and the longer they go without jobs, the tougher it will be. And more jobseekers gave up looking for work than found a job, for the 49^th time in the past 50 months. This is surely a demographic shift, but it also means we’re losing the skills and productivity of some of the most experienced workers.  For people who are finding jobs, the median duration of unemployment continues to drop rapidly, from 25 weeks coming out of the recession to just 13.1 weeks today.

Long term unemployment and underutilization indicate that there is still significant slack in the labor market, even though some companies are now beginning to report that they are having to compete to find workers.

So far, the trend has not resulted in higher incomes. Average pay has grown just 2% during the recovery, barely matching inflation and below the long term trend of 3.5%. Last month, the average hourly wage for private-sector workers rose six cents to $24.45. If workers earn more money, they’ll spend more money and that is a boost to the overall economy. The silver lining to the weak wages is that there is no wage inflation, so even though the jobs picture is improving, wage inflation should not influence the Federal Reserve.  Even if hourly wages aren’t moving much, there was a small pickup in the average work week and aggregate hours worked grew by a fairly strong 3.8% annual rate in the last quarter.

Job gains in June were widespread. Retailers added 40,200 workers last month. Financial and insurance firms increased their payrolls by 17,000. Restaurants and bars employed nearly 33,000 more people. Higher-paying sectors continued to lag behind in the jobs recovery. Factories added 16,000 workers, and construction added 6,000 workers, which would not be considered particularly strong. Factory payrolls have increased for 11 consecutive months, adding a total of 139,000 new jobs, well below the target of one million manufacturing jobs for the year. Factory payrolls remain a shadow of their former selves, but the revival in manufacturing is finally creating more job opportunities on the factory floor.

Shrinking unemployment and growing payrolls are always good signs for a stronger economy. However, the nature of these changes matters. If unemployment is low primarily due to labor force dropouts, and if employment growth is being driven by hundreds of thousands of low-earning part-time workers rather than growth in valuable and decent paying full-time positions, it means that the economic recovery still faces a hard slog.

The jobs report was far from perfect but it was very good and it should lead to growth in the economy for the second quarter. So today, stocks had another good day. The Dow closed above 17,000 for the first time ever. The S&P 500 is closing in on 2000. The Nasdaq is back to its highest level since 2000. Bonds dropped. And that is an ongoing trend, the markets race along while workers trudge.

Friday, April 04, 2014 - The March Jobs Report

Financial Review with Sinclair Noe

DOW – 159 = 16,412
SPX – 23 = 1865
NAS – 110 = 4127 (-2.6%)
10 YR YLD - .06 = 2.73%
OIL + .77 = 101.06
GOLD + 15.50 = 1303.30
SILV + .14 = 20.06

Today is a jobs report Friday. Let’s get geeky.

The Labor Department reported nonfarm payrolls increased by 192,000 jobs last month after rising by 197,000 in February (that’s revised from 175,000). The prior 2 months were revised to show 37,000 more jobs than previously estimated; the revisions indicate that the bad winter weather was not a huge problem for the labor market; it did have an effect but not huge, and we certainly shouldn’t hear any more weather related excuses. The unemployment rate was unchanged at 6.7% as more people were looking for jobs. The consensus estimate was 200,000 jobs, so the figures were a little below expectations.

Private employment rose to 116.09 million, finally moving beyond the previous high of 115.98 million recorded at the very start of the recession in January 2008.Total employment is just a little below the pre-financial crisis days; we still have about 437,000 fewer jobs than the peak in 2008, but private employment is now above the peak by 110,000 and at a new all-time high; the difference is that more than a half million government jobs have been cut during that time; also, the population and the labor force has grown over the past 6 years, so the unemployment rate remains fairly high. And the idea is not just to get back to where we were, but to get back to where we should be. Keep in mind, we have 15 million more people now than we did then.

The economy added 533 thousand jobs in Q1 this year compared to 618 thousand in Q1 2013; the bad weather is the excuse for the weaker performance. Still the unemployment rate has dropped from 8.2% in March 2012 to 6.7% now.

The Labor Force Participation Rate was increased in March to 63.2%. This is the percentage of the working age population in the labor force.  And while the participation rate is still low compared to the past 20 years, it is a positive sign that more people are looking for jobs, suggesting they were lured back into the job hunt as openings began to appear. Or possibly, more long-term unemployed were pushed back into the job market as benefits were cut. The number of long-term unemployed fell by 110,000, and over the past year, the ranks of the long-term jobless have dropped by 837,000; meanwhile, the ratio of the population reporting they had a job ticked up to 58.9% from 58.8%. Much has been made of the multiyear slide in the labor force participation rate since the financial crisis of 2008. In the last few months, however, the labor force participation rate has actually stabilized.

Anyway, about a half million people jumped back into the labor pool and about that many found jobs; if it were not for the increase in the size of the labor force, the unemployment rate would have fallen to 6.5%. It also means that the unemployment rate is unlikely to keep falling as sharply as it has in the last two years, because people who are again looking for work are counted as unemployed, while those who have given up and dropped out of the labor force are not.

There are 7.4 million people working part-time who would prefer to work full-time, or they are part time because their hours have been cut back, or they have given up looking for a job. There is a separate measure for them, known as the U-6 unemployment rate, which comes in at 12.7%; up from 12.6% in February, but down from 13.8% a year ago. The headline unemployment rate of 6.7% is known as U-3. The U-6 includes all those people in U-3 plus all the underutilized and discouraged workers. In healthier job markets, the gap between U-3 and U-6 is closer to 3% or 4%.

After months of declines in the part-time labor force, the BLS reported a spike of 414,000 new part-time workers in March, which was the largest monthly increase in nearly two years. This could just as well be an aberration, as it was a year ago, but the part-time picture in the American workforce is far from rosy. The financial crisis resulted in a spike in the number of part-time workers as a percentage of the labor force, and this has remained elevated ever since.

The increase in jobs was paced by gains in construction, retail and professional services. Government employment over all remained flat, with federal and state governments cutting 11,000 jobs even as local governments added 9,000 positions. Over the past 12 months, total federal employment has fallen by 85,000. That's pretty much how it has gone throughout the grinding recovery; private hiring has been slow but steady, while austerity has led to government job cuts that have helped keep the recovery frustratingly slow.

The health care sector added 19,000 jobs. Business services added 57,000 jobs. Food services employment increased by 30,000, bringing the sector’s gain over the past year to 323,000. The manufacturing sector lost 1,000 jobs.

While average hourly earnings were basically flat, the length of the average workweek edged higher. The average work week for private employees edged up to 34.5 hours, offsetting a net decline over the prior three months; as a consequence of the bad weather, many people lost time on the job, but it was made up in March. Average weekly hours, at 34.5 per worker, aren't far off of the 34.7 hours per worker recorded six years ago, but when you add up a fifth of an hour across more than 100 million workers, it makes a very big difference in the amount of time Americans actually spent on the job.

Average hourly earnings for private employees fell by 1 cent to $24.30 from a month earlier. Over the year, average hourly earnings have risen by 49 cents, or 2.1%. The average weekly wage rose to $838.55 from $833.83. The reason for this anomaly: a 12-minute increase in the average amount of time worked each week.  Conclusion: Bargaining power for workers is still subdued. But their services are more in demand.

The jobs report also provides details about who is benefiting from recovery and who is not. The recovery has been good for college educated workers and whites. It has been much more difficult for the long-term unemployed, young adults without a college education, and African Americans. Among adults 25 and older who have a bachelor’s degree the unemployment rate is just 3.4%, about half the over-all rate.

The unemployment rate for college graduates never went above five per cent in the downturn. At the other end of the educational spectrum, things were very different. For adults 25 and older without a high-school diploma, the jobless rate hit 15.6% in 2010. Last month, it stood at 9.6%.

Among white men aged 20 and over, the unemployment rate is now 5.3%; for African-American men over 20, it is 12.1%. The gap between white and black females is also very large, 5.3% of white women aged twenty and over are out of work (the same as the rate for white men), but 11% of black women in the same age group are jobless. Hispanics also have substantially higher rates of unemployment than whites, but the differences aren’t as large. Among Hispanic men aged twenty and over, the jobless rate in March was 6.9%; among Hispanic women aged twenty and over, the rate was 8.4%.

For teenagers between the ages of 16 and 19 who aren’t in school or college, the unemployment rate is 20.9%. That’s down from 23.3% a year ago. It’s still a very high figure, and, among minority teenagers, it’s even higher.

The stock market moved a little higher this morning following the jobs report. It wasn’t a bad jobs report that sank the market today. Most of the stories I read had a theme of not too hot, not too cold, a Goldilocks report. The Fed uses the jobs report to help determine the timing and pace of further cuts to its monthly bond-buying program. The central bank also looks to the unemployment rate as a factor in deciding when to raise its benchmark interest rate. This report did not sway the Fed one way or the other.

What went wrong on Wall Street? It’s always dangerous to lay an exact cause on any singular event, but the big damage today was in the Nasdaq and the tech and biotechs. There’s a little bit of nervousness about some of the high multiples in the biotech area and computer and Internet-related stocks. You’re having another wave of selling in that very high-momentum group. When you’re at record high levels, people start to get a little tentative going into weekends.